An Introduction to Automated Trading – Finance Magnates

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The pros and cons of forex trading with automations.
Automations in exchange trading have been around in one form or another since the 1980s, though the concept of rules-based trade strategies dates back even further, to the 1940s. As retail investing has exploded in popularity around the world, popular trading platforms have adapted to enable forex traders to write and publish their own automations or ‘trading robots’. Likewise, the evolution of computer processing power led to the rise of more advanced forms of automation.
Like many terms in retail investing, ‘automated trading’ covers a broad range of activities intended to make monitoring markets and executing trades faster and more efficient by outsourcing certain tasks to computer programs.
Basic automation might entail inputting a specific set of buy and sell parameters into your preferred trading software with a command to execute an order when those parameters are met. The sophistication of your automation largely depends on the complexity of your trading strategy and knowledge of programming, with more experienced traders adding increasingly narrow conditions and interlocking sets of commands.
Whether it’s a simple set of buy-sell price conditions or an elaborate combination of if-then commands, all automated trading relies on a computer program to perform each part of the trading process. Once you’ve input your order prerequisites, you’re free to step away from the screen while the faithful robot tirelessly scans the markets for opportunities, moving with lightning speed to act on your behalf when it spots a suitable trade.
As technology has evolved, automated trading has come to include other trading styles, such as algorithmic trading, social trading and copy trading.
Find out more about the list of tools to help you in your crypto trading
Algorithmic trading allows traders handling large quantities of assets to manage trading costs by slicing orders that might otherwise be too large to execute efficiently under favourable conditions into smaller tranches.
Many traders use ‘algorithmic trading’ and ‘automated trading‘ interchangeably, but they’re not quite the same. Traders can automate an algorithmic strategy to allow computers to handle each part of the transaction, including when to trade, however, the algorithm that gives the trading strategy its name only handles one component: the division of the order and its execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Read this Term.
Social trading and copy trading use specially created trading bots to send ‘signals’ to a trader when a particular investor places an order. A separate automation then mimics this order, in the case of copy trading, or simply observes and assesses if you’re a social trader.
Given its exceptional popularity, you might wonder just what makes automated trading so special.
For some traders, the practical benefits make it a better choice than self-managed strategies, leaving a trading bot to monitor the markets frees up valuable time for refining a strategy. Others like the idea of managing risk by simultaneously trading across multiple platforms. In general, however, the benefits of automated trading can be summarized as ‘fast’ and ‘logical’.
The same volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term that makes forex a profitable trading environment can wreak havoc on your trading strategy if you allow emotion to take over. Watching the markets rise and fall, glued to your screen and scanning frantically for an opportunity to enlarge your profits or mitigate your losses, you’re likely to trade impulsively and abandon your carefully-planned strategy. Or perhaps you can’t bring yourself to execute an order, even though every indicator says you’ll win the trade.
Because your participation in the trading process begins and ends with developing a strategy and instructing or creating a trading robot to act on your behalf, automated trading eliminates the risk that you’ll deviate from the best-laid plans due to anxiety or over-optimism.
The only way to test a strategy with manual trading? Put your money in the market and track your progress over time in hopes of identifying patterns in your wins and losses. It’s an expensive and time-consuming learning process that requires you to consciously sit out opportunities that arise or hold tight during downturns, both of which are emotionally taxing.
Automated trading, on the other hand, offers the option to see how your trading rules would’ve performed against historical data. Backtesting not only offers you a risk-free opportunity to refine the rules you apply to your trades, it also makes it much easier to assess what’s working in your strategy and what’s not. Without the ‘noise’ of one-off trades you couldn’t help but execute and months, if not years, of historical market data to use as a testing ground, you have access to clear, actionable information without risk.
Trading robots operating on multiple accounts, or even multiple platforms, can help you to control the inherent risk of trading in highly volatile markets in several ways. Without the need to constantly monitor markets and input orders yourself, you’re free to trade across several asset classes simultaneously, distributing risk as you see fit. Alternatively, you can assign different strategies to individual trading robots in the same asset class, ensuring that you’re always on the right side of a market trend.
One of the first things novice traders learn is seconds count. The adage that time is money was never more accurate than in the context of trading forex, where entering or exiting a trade at the right millisecond can mean the difference between significant profits and just breaking even.
Automations react immediately to market conditions, moving to execute orders as soon as your desired preconditions are met. While the human brain needs to recognize those conditions, process them and then signal your body to take action, the trading bot not only opens your position seamlessly but generates the necessary orders to protect your investment or execute the trade. All in less time than it takes a human trader to blink.
Of course, no single trading system, tool or strategy is perfect, and automated trading also comes with drawbacks. If you’re not familiar with programming, or willing to learn, you may be limited to trading via algorithms designed by someone else, rather than a tool custom-fitted to your specific strategy. If, on the other hand, you have the ability to fully develop your own automations, you run the risk of over-optimizing: creating an algorithm so closely tailored to match historical data that it fails in live market conditions.
Relying on computer software to trade on your behalf also means that you may miss out on opportunities or place losing orders in the event of technical trouble or mechanical failures. You may also struggle to reap the benefits of automations if your preferred broker can’t provide direct market access or similar trading conditions.
With successful automated traders touting on social media platforms and in prominent forex publications, the popularity of trading bots, copy portfolios and ‘algorithmic strategies’ has skyrocketed in recent years. MetaTrader Marketplace alone claims over 1,700 unique Expert Advisors, while a 2019 study estimated that automations fully execute 92% of trades in the forex market.
Before moving away from manual trading to explore automations, I recommend that you first ask yourself a few key questions:
If, after some reflection, you believe automations will enhance your trading experience or lead to higher profits, you can begin the process of transitioning to fully or partially machine-controlled trading by following these steps:
Automated trading has revolutionized day trading for retail investors, allowing ordinary traders to leverage the power of machine learning to compete with much larger institutional investors and profit from market volatility.
Before adopting an ‘algorithmic trading strategy’, however, it’s important to assess whether this style of forex trading works well with your existing trading style, financial resources and even your personality.
The pros and cons of forex trading with automations.
Automations in exchange trading have been around in one form or another since the 1980s, though the concept of rules-based trade strategies dates back even further, to the 1940s. As retail investing has exploded in popularity around the world, popular trading platforms have adapted to enable forex traders to write and publish their own automations or ‘trading robots’. Likewise, the evolution of computer processing power led to the rise of more advanced forms of automation.
Like many terms in retail investing, ‘automated trading’ covers a broad range of activities intended to make monitoring markets and executing trades faster and more efficient by outsourcing certain tasks to computer programs.
Basic automation might entail inputting a specific set of buy and sell parameters into your preferred trading software with a command to execute an order when those parameters are met. The sophistication of your automation largely depends on the complexity of your trading strategy and knowledge of programming, with more experienced traders adding increasingly narrow conditions and interlocking sets of commands.
Whether it’s a simple set of buy-sell price conditions or an elaborate combination of if-then commands, all automated trading relies on a computer program to perform each part of the trading process. Once you’ve input your order prerequisites, you’re free to step away from the screen while the faithful robot tirelessly scans the markets for opportunities, moving with lightning speed to act on your behalf when it spots a suitable trade.
As technology has evolved, automated trading has come to include other trading styles, such as algorithmic trading, social trading and copy trading.
Find out more about the list of tools to help you in your crypto trading
Algorithmic trading allows traders handling large quantities of assets to manage trading costs by slicing orders that might otherwise be too large to execute efficiently under favourable conditions into smaller tranches.
Many traders use ‘algorithmic trading’ and ‘automated trading‘ interchangeably, but they’re not quite the same. Traders can automate an algorithmic strategy to allow computers to handle each part of the transaction, including when to trade, however, the algorithm that gives the trading strategy its name only handles one component: the division of the order and its execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018. Read this Term.
Social trading and copy trading use specially created trading bots to send ‘signals’ to a trader when a particular investor places an order. A separate automation then mimics this order, in the case of copy trading, or simply observes and assesses if you’re a social trader.
Given its exceptional popularity, you might wonder just what makes automated trading so special.
For some traders, the practical benefits make it a better choice than self-managed strategies, leaving a trading bot to monitor the markets frees up valuable time for refining a strategy. Others like the idea of managing risk by simultaneously trading across multiple platforms. In general, however, the benefits of automated trading can be summarized as ‘fast’ and ‘logical’.
The same volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term that makes forex a profitable trading environment can wreak havoc on your trading strategy if you allow emotion to take over. Watching the markets rise and fall, glued to your screen and scanning frantically for an opportunity to enlarge your profits or mitigate your losses, you’re likely to trade impulsively and abandon your carefully-planned strategy. Or perhaps you can’t bring yourself to execute an order, even though every indicator says you’ll win the trade.
Because your participation in the trading process begins and ends with developing a strategy and instructing or creating a trading robot to act on your behalf, automated trading eliminates the risk that you’ll deviate from the best-laid plans due to anxiety or over-optimism.
The only way to test a strategy with manual trading? Put your money in the market and track your progress over time in hopes of identifying patterns in your wins and losses. It’s an expensive and time-consuming learning process that requires you to consciously sit out opportunities that arise or hold tight during downturns, both of which are emotionally taxing.
Automated trading, on the other hand, offers the option to see how your trading rules would’ve performed against historical data. Backtesting not only offers you a risk-free opportunity to refine the rules you apply to your trades, it also makes it much easier to assess what’s working in your strategy and what’s not. Without the ‘noise’ of one-off trades you couldn’t help but execute and months, if not years, of historical market data to use as a testing ground, you have access to clear, actionable information without risk.
Trading robots operating on multiple accounts, or even multiple platforms, can help you to control the inherent risk of trading in highly volatile markets in several ways. Without the need to constantly monitor markets and input orders yourself, you’re free to trade across several asset classes simultaneously, distributing risk as you see fit. Alternatively, you can assign different strategies to individual trading robots in the same asset class, ensuring that you’re always on the right side of a market trend.
One of the first things novice traders learn is seconds count. The adage that time is money was never more accurate than in the context of trading forex, where entering or exiting a trade at the right millisecond can mean the difference between significant profits and just breaking even.
Automations react immediately to market conditions, moving to execute orders as soon as your desired preconditions are met. While the human brain needs to recognize those conditions, process them and then signal your body to take action, the trading bot not only opens your position seamlessly but generates the necessary orders to protect your investment or execute the trade. All in less time than it takes a human trader to blink.
Of course, no single trading system, tool or strategy is perfect, and automated trading also comes with drawbacks. If you’re not familiar with programming, or willing to learn, you may be limited to trading via algorithms designed by someone else, rather than a tool custom-fitted to your specific strategy. If, on the other hand, you have the ability to fully develop your own automations, you run the risk of over-optimizing: creating an algorithm so closely tailored to match historical data that it fails in live market conditions.
Relying on computer software to trade on your behalf also means that you may miss out on opportunities or place losing orders in the event of technical trouble or mechanical failures. You may also struggle to reap the benefits of automations if your preferred broker can’t provide direct market access or similar trading conditions.
With successful automated traders touting on social media platforms and in prominent forex publications, the popularity of trading bots, copy portfolios and ‘algorithmic strategies’ has skyrocketed in recent years. MetaTrader Marketplace alone claims over 1,700 unique Expert Advisors, while a 2019 study estimated that automations fully execute 92% of trades in the forex market.
Before moving away from manual trading to explore automations, I recommend that you first ask yourself a few key questions:
If, after some reflection, you believe automations will enhance your trading experience or lead to higher profits, you can begin the process of transitioning to fully or partially machine-controlled trading by following these steps:
Automated trading has revolutionized day trading for retail investors, allowing ordinary traders to leverage the power of machine learning to compete with much larger institutional investors and profit from market volatility.
Before adopting an ‘algorithmic trading strategy’, however, it’s important to assess whether this style of forex trading works well with your existing trading style, financial resources and even your personality.
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